================= HES POSTING ================= While we have established (perhaps) that the term "externality" was first used by Samuelson in the mid-1950s, the closely-related term "external economies" is older still. The term appears throughout Allyn A. Young's famous article "Increasing Returns and Economic Progress," Economic Journal, volume 38 (1928), pp. 527-42, which can be accessed on-line at http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/young/increas.html Young attributes the distinction between internal and external economies to Marshall, but, as was typical of that era, provided no direct citation of Marshall. Slightly earlier, Frank Knight used the term in "Some Fallacies in the Interpretation of Social Cost" (QJE, 38, November 1924). Here is the most important paragraph: "The rejoinder to the above argument [that, when competition is effective, all technical economies will be incorporated into enterprises' costs] is the doctrine of 'external economies,' which surely rests upon a misconception. Economies may be 'external' to a particular establishment or technical production unit, but they are not external to the industry if they affect its efficiency. The portion of the productive process carried on in a particular unit is an accidental consideration. External economies in one business unit are internal economies in some other, within the industry. Any branch or stage in the creation of a product which offers continuously a chance for technical economies with increase in the scale of operations must eventuate either in monopoly or in leaving the tendency behind and establishing the normal relation of increasing cost with increasing size." [I don't have the page number, because this is copied from my electronic version of the paper, and my copy is at home, where I am correcting page proofs. However, the paragraph is from the second section of the paper] We await word regarding Marshall's use of the term "external economies"! And might it go back beyond Marshall? Ross B. Emmett [log in to unmask] ============ FOOTER TO HES POSTING ============ For information, send the message "info HES" to [log in to unmask]